Aug 06 2012
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Algerian Gas Set For Boost From 3.7 BCM/Y Petroceltic Development
Algerian Gas Set For Boost From 3.7 BCM/Y Petroceltic Development
Algeria is close to its biggest upstream project approval this year as negotiations between Irish independent Petroceltic and state firm Sonatrach over the 3.7 bcm/year development of the 2.2 tcf ï¿½Ain Tsila discovery approach their climax. A final investment decision is expected later this year, with first production from the Isarene permit in Algeriaï¿½s prolific Illizi Basin slated for 2017, James Cockayne writes.
Negotiations between Petroceltic, its Italian partner Enel, and Algerian state firm Sonatrach over the details of the declaration of commerciality are at a ï¿½very advanced stage,ï¿½ Petroceltic says, and are set for conclusion by 10 August. This deadline was twice put back (from 25 April and then from 24 July) as the counterparties sought to hammer out the details of gas sales and marketing agreement.
Petrocelticsays that its draft plan, originally submitted in January, has now been ï¿½substantially agreedï¿½ and that ï¿½very significant progress has also been made towardsï¿½the principal terms of the associated gas sales agreement.ï¿½ All gas will be sold to Sonatrach at a Brent-related price at the edge of the field perimeter, with Sonatrach bearing all subsequent transport costs, MEES understands. However, as has often been the case in recent years, the foreign partners will retain marketing rights for their share of liquids production ï¿½ although the most likely option in practice is that liquids will be marketed by Sonatrach on behalf of Petroceltic inï¿½ return for the payment of a small fee.
Final approval of the agreement from the Algerian authorities and a final investment decision (FID) from Petroceltic and its partners are expected before the year-end. In addition to approval of the development plan Petroceltic says that a positive FID is dependent on an ongoing ï¿½gas sales feasibility studyï¿½ concluding that development will be profitable. Front end engineering and design (FEED) is slated for 2013 with construction set to begin in 2014.
Second Farm-Out Planned
Petrocelticplans to sell a further stake in the project in order to fund its share of $1.5bn expected capital expenditure to first gas, a massive amount for a company whose market capitalization is $290mn. Negotiations for a second farm-out have proceeded in parallel with the commerciality proceedings; Petroceltic expects to finalize a sale this year following which it anticipates being responsible for 38% of development costs. Development drilling will begin in 2015 with a total of 20 wells planned, leading up to first gas in 2017 ï¿½ from when development will be self-financing. Some 150 development wells are planned over the fieldï¿½s lifetime.
Analysts Peel Hunt note in a recent report that ï¿½Petroceltic will require significant additional funds in order to maintain its development strategyï¿½ and that a second farm-out ï¿½has the potential to remove funding uncertainty from the projectï¿½s development.ï¿½It adds that with 2011ï¿½s six-well appraisal drilling program having almost doubled mid ï¿½gas in placeï¿½ estimates to over 10 tcf since the Enel deal was struck, a second sale is likely to place a higher value on 'Ain Tsila, and thus Petroceltic itself given that the Algerian field is by far its largest proved asset.
Petrocelticsays that having Enel on board has been of great benefit both in terms of the Italian firmï¿½s close relationship with Sonatrach and its position as a key purchaser of Algerian gas. Italy is the key export market for Algerian gas, with Enel the countryï¿½s largest end-user. ï¿½Enelï¿½s unparalleled knowledge of European gas markets combined with its historic relationship with Sonatrach makes it an ideal partnerï¿½ The expertise and knowledge that Enel brings has already greatly enhanced Petrocelticï¿½s understanding of and access to the European market for Isarene gas,ï¿½ the Irish company says. Enel has a stake in the 33 bcm/y TransMed pipeline linking Algeria with Italy via Tunisia as well as the planned 8 bcm/y Algeria-Italy Galsi pipeline, although the latter now appears unlikely to go ahead (MEES , 11 June).
Enelpaid Petroceltic an initial $100.6mn for a 18.375% stake in the Isarene permit, which comprises Blocks 228 and 229a (although the deal was struck in April 2011 payment was not received until February this year, leaving Petroceltic struggling to raise the funds for last yearï¿½s appraisal drilling). Petroceltic retains 56.625%, whilst Sonatrach has 25%. Enel will make an additional payment of around $25mn upon approval of the declaration of commerciality, with the exact amount dependent on the declarationï¿½s official figure for recoverable reserves. Enelï¿½s purchase price equates to 18.375% of costs for the initial April 2005-April 2010 exploration phase and 49% of 2011ï¿½s six-well program.
Algeriaï¿½s Gas Infrastructure And Petrocelticï¿½s Isarene Permit
Source : Petroceltic.
Key Algerian Project
Moving to development at 'Ain Tsila is not only a massive deal for Petroceltic, it is also likely to be the biggest hydrocarbon development to be approved in Algeria this year. Production volumes are slated to be even greater than Repsol-led Reggane Nord (although the significance of Reggane Nord is greater as it involves the opening up of the wider southwest region to gas development ï¿½ MEES , 6 February).
Although two major new Algerian gas projects are due on-stream late this or early next year ï¿½ the 6.2 bcm/y (and 130,000 b/d of liquids) Anadarko-led El Merk and Eniï¿½s 3.6 bcm/y Menzel Lejmat East/Central Area Field Complex, both in the Berkine Basin ï¿½ repeated delays due to 2009-11 upheavals in Algeriaï¿½s energy hierarchy mean that there is a hiatus of new production due on-stream over the next few years. A string of major upstream developments originally slated for 2011-13 have been pushed back to 2015 (GdFï¿½s 4.5 bcm/y Touat), 2016 (2.9 bcm/y Reganne Nord) or potentially even later (Totalï¿½s yet-to-be-approved 4 bcm/y Ahnet ï¿½ see p15).
© Copyright MEES 2012.
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